Report
It is normal that the share prices of euro-zone banks are a very sensitive indicator of financial markets’ risk perception
The variability of share prices of euro-zone banks is very high, with a beta of around 1.6 - 1.7 in the recent period . This situation is normal, as investors know that a deterioration in the economy will lead to a dilution of the banks’ former shareholders and a lasting halt to dividends due to the nature of bank regulation. If the economy deteriorates: Euro-zone banks will have to maintain their capital levels while facing borrower defaults; And it is even likely that they will have to increase their capital by facing more severe stress tests. It is therefore legitimate to use the share prices of euro-zone banks as a high-frequency indicator of investors’ perception of risk and economic prospects.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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